Angie · learn
Coupon rate
The fixed annual interest a bond pays, as a percentage of its face value. It never changes, which is why the price has to move instead.
Updated 2026-09-05
The coupon rate is the fixed annual interest a bond pays as a percentage of its face value. A 5 percent coupon on $1,000 pays $50 a year until maturity, regardless of what the bond is trading at.
Because the payment is fixed, the price is what has to move. When market rates rise above the coupon, the bond has to trade below face value for its effective yield to compete. That single relationship is the entire mechanism behind bond price movement. See yield to maturity.
See also
- Bond — A loan to a company or government, repaid on a fixed schedule with interest. You are a creditor, not an owner, and you get paid before shareholders.
- Yield to maturity — The total return on a bond held to the end, counting both interest and the pull toward face value. It is the bond's internal rate of return.
- Duration — How much a bond's price moves for a one-point change in rates. A duration of 7 means roughly a 7 percent fall if yields rise a point.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
